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Published byPhilippa Davis Modified over 9 years ago
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Interbank Dealer Broker - IDB David Rogers July 25-26, 2000 Jakarta, Indonesia
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Forces underlying bond growth Local demand High savings rate Predictable cash flows Asset/Liability Matching Bonds provide the right risk profile Foreign Demand Attractive yields Improved Sovereign risk outlook Policy Liberalisation Portfolio diversification
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Supply Factors Increase in Government borrowing Need for benchmark yield curves Falling interest rates/tighter spreads Exchange rate stability Increased market liquidity/interest Maturity mismatch between loans and investments Long-term infrastructure needs
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Development of a Government Bond Market Primary Markets /Market Makers Developing Process
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Development of a Government Bond Market Primary markets/ Market Maker Essential in building deep liquid markets Expertise Distribution Pricing Market Making
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Development of a Government Bond Market Benchmarks Primary Markets /Market Makers Developing Process
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Development of a Government Bond Market Benchmarks definition : reference securities with exact dates, issued in a wide range of maturities with adequate size for the market to trade in.
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Development of a Government Bond Market BenchmarksRepurchaseAgreements Primary Markets /Market Makers Developing Process
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Development of a Government Bond Market Benefits of REPO’s Ability to service customer flow Liquidity Investment alternative for investors Financing positions at a lower cost Arbitrage [cash (vs) futures]
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Development of a Government Bond Market BenchmarksRepurchaseAgreements SecondaryMarkets Primary Markets /Market Makers Developing Process
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Development of a Government Bond Market Secondary Markets Liquidity - Are there enough players participating in the market to show competitive prices? Depth - Are there adequate issues placed into the market? Do 2-way prices still exist after the first or second week of the original issue date? Transparency - Who has a clear picture of what an issue is really worth at any given time?
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Development of a Government Bond Market BenchmarksRepurchaseAgreements SecondaryMarketsInter-BankDealers Primary Markets /Market Makers Developing Process
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Development of a Government Bond Market Role of Inter-Dealer Broker Brings the various market makers together Disseminates to the market via telephone, screen or a combination of the two Facilitates the development of the secondary market Liquidity Depth Transparency Earns commission for arranging trades at pre-agreed fees
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IDB vs Market Marker IDBs No positions in the market. Bi-partisan, independent role Best efforts, best execution For a pre-agreed commission Market Maker Willing to support or participate in market by giving two way prices Takes positions Trades for a spread
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Markets without an IDB Yes, they can and do exist… Without an IDB in the market it may at times be difficult to execute trades Finding out the value of securities could be difficult IDBs’ help offshore investors to understand the limitations of a market. Help with liquidity and execution
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Development of a Government Bond Market BenchmarksRepurchaseAgreements SecondaryMarketsInter-BankDealers Clearing and Settlement Primary Markets /Market Makers Developing Process
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Development of a Government Bond Market Clearing / Settlement System Securities - usually issued and held in scriptless form/computer format Transfers placed over a wire system, such as money transfers Central Bank/Govt entity usually provides electronic book-entry format system These systems contribute to liquidity, and settle securities quickly and effectively
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Development of a Government Bond Market BenchmarksRepurchaseAgreements SecondaryMarketsInter-BankDealers Clearing and SettlementRegulations Primary Markets /Market Makers Developing Process
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Development of a Government Bond Market Market Regulation Creating a framework conducive for dealers/brokers A committee comprised of dealers, IDBs, and regulatory groups to deal with any trading situations by general consensus US - National Association of Securities Dealers, (NASD) a division of the Securities Exchange Commission (SEC) UK - (SFC) Securities & Futures Commission regulates market
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Regional Bond Markets Hong Kong US$14bn outstanding/ Daily turnover US$2.0 bn 100+ Recognized Dealers 29 market-makers / two-way prices Govt auction/can trade via CMU with links to Euroclear and Cedel 7 IDBs [5 international/ 2 local] Screens + name-give-up on completion Small repo market
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Regional Bond Markets Hong Kong promote efficiency, integrity, and development of the financial system promote development of the local debt market through improving market infrastructure and promote issuance of high quality debt instrument
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Development of a Government Bond Market BenchmarksRepurchaseAgreements SecondaryMarketsInter-BankDealers Clearing and SettlementRegulations Primary Markets /Market Makers An Effective Government Bond Market Developing Process
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Prebon Yamane Group No substitute for knowing the market Foreign exchange, money markets, derivatives, securities (fixed-income and equities), energy and emerging markets Brokers transactions exceeding US$55 trillion annually - world-wide client base 31 international offices, 10 in Asia New Products and Regional specialist Leader in fixed income, illiquid debt, credit and debt derivatives
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